Why Health Care Markets Can Never Work

by David Spero / March 26th, 2011

Suppose I want to buy a used car, and imagine there’s no Cars.com or Craig’s List, and professional used car salesmen are the normal way to buy. So I go to a dealer ask him about maybe a 1998 Honda, thinking that’s what I can afford.

“Oh, no,” says the dealer. “That would be totally wrong for you. You need a 2009 Lexus.”

“But I can’t afford that. I’ve only got $4000.”

“Look. If you don’t get that Lexus, you could die. Or have a terrible accident. Or at the very least, you would have to stop driving after two or three years. Yes, it’s expensive. But this is your future we’re talking about.”

“Well, I guess you’re the expert. If I really need it, I’ll sign the papers and worry about paying for it later.”

Of course this conversation would be insane. The seller can’t decide what the buyer pays for. That would be the ultimate sellers’ market, in which prices would spiral endlessly upward, and everyone would be driving around in much more car than they needed or could afford. Soon, many buyers would go bankrupt and stop driving entirely, and the system of car-based transportation would collapse. Besides, nobody would allow a car salesman’s opinion to override their own in the first place.

But substitute “doctor” for “car dealer” and “treatment” for “Lexus,” and you have the exact situation that exists in American medicine now. The sellers – physicians, hospitals, drug companies, medical equipment makers – tell the buyers – us and our insurance providers – what we need. We can say no, but the professionals are the experts. They know far more than we do. (Or at least we think they do.) Sometimes they bully and threaten (“You could die!”) So the sellers have more input into the final purchase decision than the buyers do. And as a result, costs are spiraling upward, people are being over-treated and going bankrupt, and the system is collapsing.

Markets are good for things like cars. The buyer looks for what he wants. When he finds something close, the seller makes an offer and the buyer decides whether the price is acceptable. Eventually they agree on a price, or they don’t, in which case there’s no sale.

But healthcare is completely different. The sellers are in control. They’re steering purchase decisions. With or without “health care reform,” it makes no difference. Prices will keep going up; unnecessary services will keep proliferating. Individuals, companies, and governments will continue to be bankrupted. Millions will be denied care for lack of funding. And free market advocates will keep saying the market is the answer to our healthcare crisis.

Our society can decide that everyone is entitled to appropriate medical care, or not. But we can’t provide care to any except the very rich under this topsy-turvy anti-system. Costs will continue to spiral if sellers set the prices and make the purchasing decisions. Eventually we will run out of money, and eventually came about twenty years ago in the US. We’ve been paying medical bills on credit ever since.

A sellers’ market can’t control costs. Instead, costs should be controlled, as they are in Europe, with rational, evidence-based decisions on what treatments are effective and affordable, and what they should cost. Of course, such a system will be open to corruption and abuse, but, unlike the present system, at least we would have a chance to do things rationally.

Alternatively, we can deny care to ever-larger sections of the population who can’t pay the escalating prices. Either way, we should stop pretending that the ultimate seller’s market will fix itself. It can’t.

5 comments on this article so far ...

The implication of this article by the author is that markets can work in other areas but not in health care? Why? Why not just say that markets fail. The same analogy used in health care can be used for housing as well. What I never understand is why “health care” is isolated from all of the necessities that are needed in order to provide good health like housing, security, human relationships, access to resources, etc. Markets in these areas lead to poor health and most doctors do not prescribe ending social inequalities as a requirement for improved health.

This is the same argument why I’m against “single payer” because it won’t alleviate ill health due to social stress. It will only permit you to “see a doctor” who will in most cases just prescribe some drug.

In fact, under new health care reform your health insurance company will no longer be allowed to cancel your policy if you get sick, we should be doing this already! search online “Wise Medical Insurance” it is a good place to find insurance if you have illness like me.

Deadbeat wrote:
“This is the same argument why I’m against “single payer” because it won’t alleviate ill health due to social stress. It will only permit you to “see a doctor” who will in most cases just prescribe some drug.

“Controlling cost” does not provide good health. ”
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Deadbeat,
This is a very faulty poor logic. You are confusing “good health” with” health care”.
Having “good health” depends on a lot of factors, including, hereditary, environmental, diet &eating habits, type of work, the diet of the mother during pregnancy, the nuturing of the child during the formative years, or just pure luck and chance etc.. …etc.!! Add to all these of factors, the VERY imporatant factor of the AVAILABILITY of “health care” WHEN NEEDED!

Deadbeat, I can’t agree that “all markets fail.” For consumer goods, they seem to work very well, as in my used car example. I agree that medical care is not a major component of health, but sometimes it is useful. Not having access to it is stressful and sometime s expensive. So single payer would be a valuable thing, even though people’s social situation is far more important for their health.